VZCZCXRO2094
PP RUEHRG
DE RUEHSO #0165/01 0601606
ZNR UUUUU ZZH
P 011606Z MAR 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 6501
INFO RUEHBR/AMEMBASSY BRASILIA 7605
RUEHAC/AMEMBASSY ASUNCION 2950
RUEHBU/AMEMBASSY BUENOS AIRES 2662
RUEHMN/AMEMBASSY MONTEVIDEO 2295
RUEHLP/AMEMBASSY LA PAZ 3249
RUEHCV/AMEMBASSY CARACAS 0454
RUEHBO/AMEMBASSY BOGOTA 1508
RUEHSG/AMEMBASSY SANTIAGO 2007
RUEHRG/AMCONSUL RECIFE 3414
RUEHRI/AMCONSUL RIO DE JANEIRO 7857
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2727
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/USDA FAS WASHDC 0658
RHEBAAA/USDOE WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 03 SAO PAULO 000165 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/FO, WHA/BSC, WHA/EPSC, WHA/PDA 
STATE ALSO FOR P, S/P, E, EB/EPC, EB/ENR 
STATE PASS USTR FOR CRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONESE, NRIVERA, CVERVENNE 
NSC FOR FEARS 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD 
DOE FOR GWARD 
SOUTHCOM ALSO FOR POLAD 
USAID FOR LAC/AA 
 
E.O. 12958:  N/A 
TAGS: ENRG PGOV EAGR EPET SENV BR
SUBJECT: UNDER SECRETARY BURNS'S ENERGY ROUNDTABLE IN SAO PAULO, 
FEBRUARY 6, 2007 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) Summary: In his February 6 meeting in Sao Paulo with 
senior Brazilian energy experts, Under Secretary R. Nicholas Burns 
emphasized the tremendous potential of U.S.-Brazilian cooperation on 
ethanol, and solicited his interlocutors' views on developing this 
partnership. Discussion centered on the foreign policy and 
market-building potential of this cooperation.  End Summary 
 
¶2.  (SBU) Under Secretary Burns was accompanied by WHA Assistant 
Secretary Tom Shannon, International Energy Coordinator Greg Manuel, 
 
SIPDIS 
S/P Member William McIlhenny, and P Special Assistant Heide Bronke. 
Following briefings and meetings in the Consulate, U/S Burns and his 
delegation, along with Ambassador Sobel, FAS Attach Alan Hrapsky, 
ATO Director Morgan Perkins, and econoff Valerie Wheat (notetaker), 
met with Brazilian experts in the energy field to discuss avenues of 
mutual cooperation.  The discussion focused mostly on Brazil's 
experiences with ethanol.  Participants included Luis Carvalho, 
agronomist and Chairman of the National Chamber for Ethanol and 
Sugar; Plinio Nastari, Agricultural Economist and consultant; and 
William Lee Burnquist, agronomist at the Cane Technology Center. 
 
------------------------------ 
BILATERAL BIOFUELS COOPERATION 
------------------------------ 
 
¶3.  (SBU) U/S Burns opened the discussion by referring to the 
potential for tremendous growth opportunities for both countries in 
the area of ethanol and asking the speakers to explore the 
possibilities for strengthening the U.S.-Brazilian relationship 
based on cooperation in the ethanol sector.  How, he asked, could 
the world's two largest ethanol-producing countries, working 
together, impact on the global ethanol market?  Is there a 
possibility for cooperation in science and technology and joint 
research to stimulate alternative fuel production? 
 
¶4.  (SBU) Nastari described how Brazil is currently producing two 
types of ethanol:  a blend of 20-25 percent, and pure fuel for 
dedicated fleets.  Brazil produces ethanol cars and flex-fuel engine 
automobiles.  Currently 82 percent of new automobile sales are 
flex-fuel cars.  40.4 percent of fuel consumed in Brazil is ethanol. 
 
 
¶5.  (SBU) Brazil, using sugarcane technology, is currently 
converting molasses to ethanol, and this activity is expanding 
rapidly.  The basis for good ethanol production is agriculture. 
Cost-efficient sugar cane production yields cheap sugar cane.  Sixty 
percent of the cost of producing ethanol is the raw material. 
Brazil produces high-yield sugar cane inexpensively and can share 
its expertise and technology with the rest of Latin America and 
extend outward after that.  Brazil has already begun to work with 
other countries, e.g., Paraguay.  Industry contacts noted that with 
widespread sugar production throughout Latin America, development of 
a regional ethanol industry would provide a broadly-based energy 
supply.  However, in order for this sector to develop in countries 
not currently producing ethanol even though they have large 
quantities of molasses, a regulatory framework is needed. 
 
SAO PAULO 00000165  002 OF 003 
 
 
 
------------------------ 
FOREIGN POLICY POTENTIAL 
------------------------ 
 
¶6.  (SBU) Burnquist stressed ethanol's enormous potential for 
foreign policy.  Development of an alternative fuel source could 
help counter-balance Venezuela's influence, for example, in the 
Caribbean.  Post-Castro Cuba could become an important producer. 
Brazil could build on President Lula's "south-south" initiative by 
expanding to Africa, Asia, and other parts of the developing world. 
Ethanol technology for Latin America could fulfill the Summit of the 
Americas goals of 1) phasing out lead, and 2) phasing out use of 
MTBE. 
 
-------------------------- 
MAKING ETHANOL A COMMODITY 
-------------------------- 
 
¶7.  (SBU) According to Carvalho, seventy-five percent of all ethanol 
produced worldwide comes from the United States or Brazil.  The two 
countries are natural partners, able to push sustainability with 
biofuels.  They can produce clean energy, increase their incomes, 
and establish stronger commercial ties.  Ethanol should be 
considered a commodity, with the U.S. and Brazil working together, 
able to establish reference prices.  This could reduce ethanol 
costs, aid with mechanization in collection of raw materials 
(tractor companies such as John Deere), and assist in increasing 
trade in ethanol along the entire production chain.  Japan is very 
interested in maintaining a supply adequate to its needs, increasing 
mandatory ethanol use from 3 to 10 percent.  There are great 
investment opportunities in this area, with profits virtually 
guaranteed. 
 
¶8.  (SBU) Carvalho further elaborated that technologically, Brazil 
is very advanced.  Today it can produce more sugarcane per acre due 
to the development of high-yield crops.  Although not yet 
economically feasible, cellulosic enzyme processing makes it 
possible to produce 50 percent more ethanol with the same input as 
currently used, if it can be transformed to sugar base. 
 
----------------- 
CREATING A MARKET 
----------------- 
 
¶9.  (SBU) With the United States targeting greater use of ethanol 
(35 billion gallons per year), the prospects for the market are 
good, Burnquist said, the more so because a growing problem in the 
U.S. is the amount of water available for the US-corn based ethanol 
production.  Brazil is not a direct competitor, Burnquist continued, 
because its production is sugar-based.  Growing domestic demand for 
ethanol will make it a challenge for Brazilian producers to supply 
enough ethanol for its own needs; they will not immediately need to 
seek markets outside Brazil.  However, Brazil has good R&D, 
technology, and expertise, and has developed cane varieties.  It can 
share this knowledge to assist other nations to become economically 
viable using sugar cane technology, as it has already done in 
Paraguay, Ecuador, Peru and Colombia. 
 
¶10.  (SBU) U/S Burns asked how the Governments of Brazil and the 
United States could come together to work more closely on ethanol. 
 
SAO PAULO 00000165  003 OF 003 
 
 
The sugar cane industry in Brazil is traditionally private, replied 
Burnquist, with no formal role for the GoB, which is still 
formulating its policy.  This would be a propitious moment for the 
two governments to work together, using ethanol as a trade incentive 
and reaping the foreign policy benefits.  However, there needs to be 
careful joint planning to develop a proper regulatory framework. 
 
------- 
COMMENT 
------- 
 
¶11.  (SBU) Comment: The roundtable provided a useful overview of the 
issues and challenges involved in developing alternative energy 
sources.  During his subsequent encounters with political leaders 
and media, and in his well-attended and well-received speech, U/S 
Burns repeatedly called on the United States and Brazil to work 
together to develop the regulatory infrastructure and technical 
capacity to create an international market for ethanol.  End 
Comment. 
 
¶12.  (U) This cable was coordinated with Embassy Brasilia and 
cleared by U/S Burns's delegation and Ambassador Sobel. 
 
MCMULLEN